June 14 (Bloomberg) -- The European Union is poised to
scrap most parts of a proposal that would force businesses to
rotate the credit-ratings company they hire to assess their
debt.

The European Parliament’s largest political groups agreed
to scale back the proposed rotation requirement so that it would
apply only to securitizations and other kinds of so-called
structured finance, said Jean-Paul Gauzes, a French member
helping to craft the legislation. The stance brings the
Parliament’s position largely into line with that of EU national
governments, which must also approve the new rules proposed by
the bloc’s regulators last year.

Gauzes, who spoke with reporters yesterday in Strasbourg,
France, said, “We have a compromise that says we accept
rotation for structured products.” The assembly’s economic and
monetary affairs committee will vote on the draft law on June
19, according to the assembly’s website.

The European Commission, the 27-nation EU’s regulatory arm,
proposed the obligatory rotation rule last year as part of a
draft law to toughen regulation of the ratings industry amid
concerns that some of their decisions exacerbated the euro-area
debt crisis. The commission said rotation would boost
competition and solve potential conflicts of interest.

Under the original proposal, companies would have been
obliged to change the company that they pay to rate their credit
every three years.

For more, click here.

Special Section: JPMorgan Hearings

Dimon Fires Back at ‘Complex’ System in U.S. Senate Hearing

JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon
spent much of his time at a hearing where U.S. senators aimed to
put him on the defensive firing back at the federal regulatory
system.

Amid chants from protesters, Dimon arrived shortly before
10 a.m. and began answering questions about the causes of the
loss. During more than two hours before the Senate Banking
Committee, Dimon described a $2 billion loss in the bank’s chief
investment office as a hedge that “morphed into something I
can’t justify,” and largely blamed subordinates for a trading
strategy gone wrong. The bank is looking at clawing back some of
the compensation earned by those responsible, he said.

At the same time, Dimon, one of the most vocal bankers in
challenging stricter regulation, said it would be hard for
federal agencies to decide on a final version of the so-called
Volcker rule, which bans proprietary trading for a bank’s own
account.

Dimon also said overconfidence in trusted managers allowed
traders to accumulate more than $2 billion in losses through a
strategy that “violated common sense.”

Risk-monitoring systems and executives at the largest U.S.
bank failed to adequately police threats concentrated in a
derivatives portfolio at a London unit of the chief investment
office, he said. The division wasn’t subjected to the same
scrutiny as other businesses, and managers there deviated from
control procedures, even after triggers on risk limits were
breached, Dimon told the Senate Banking Committee yesterday.

It was the first of two appearances Dimon will make on
Capitol Hill to face lawmakers probing how the largest and most
profitable U.S. bank, often praised for its “fortress” balance
sheet, could have taken such risks after coming through the 2008
financial crisis largely unscathed.

The hearing didn’t answer some basic questions the Senate
has about the details of the New York-based bank’s loss,
according to Senator Richard Shelby, the ranking Republican on
the committee, said afterward.

For more, click here, click here, and click here.

To read Dimon’s prepared testimony, click here.

For video of the hearing, click here.

For more on the bank’s risk model, click here.

Trading Loss a Hit to Dimon’s Reputation, McDonald Says

Duff McDonald, author of “Last Man Standing: The Ascent
of Jamie Dimon and JPMorgan Chase,” discussed the appearance of
Dimon yesterday before the Senate Banking Committee to answer
questions about a $2 billion trading loss at the bank’s chief
investment office.

For the video, click here.

Isaac Sees ‘Excessive Reliance’ on Models in Regulation

William Isaac, chairman of Fifth Third Bancorp and a former
chairman of the Federal Deposit Insurance Corp., talked about
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon’s
testimony before the Senate Banking Committee and U.S. financial
regulation.

Lawmakers Corker, Menendez React to Dimon Testimony

JPMorgan CEO Jamie Dimon’s appearance before the Senate
Banking Committee marked the type of discussion lawmakers should
have had before the Dodd-Frank Act became law in 2010, Senator
Bob Corker, a Republican from Tennessee, told CNBC yesterday.
The hearing shows the “tremendous frailties” of the Dodd-Frank
regulatory law, the senator said.

The Dodd-Frank Act was politically motivated and won’t
“stand the test of time,” Corker said. Lawmakers should work
on “real financial reform” that addresses markets, not just
institutions, and looks at issues such as “shadow” markets.

Separately, U.S. Senator Robert Menendez, a Democrat from
New Jersey, talked to Bloomberg News about Dimon’s testimony on
the firm’s $2 billion trading loss.

Questions Remain After Dimon Testimony, Mayo Says

Mayo spoke from New York with Rishaad Salamat on Bloomberg
Television’s “On the Move Asia.”

For the video, click here.

Compliance Policy

Ex-Morgan Banker Proposes Steps to Curb Japan Insider Acts

Japan’s ruling party will consider limiting the period for
public stock offerings to four days to curtail share declines
and discourage insider trading, said lawmaker and former Morgan
Stanley banker Tsutomu Okubo.

Okubo worked at Morgan Stanley for about 10 years until
entering parliament in 2004.

A Democratic Party of Japan working group will discuss
truncating the period from the announcement of sales to
settlement of the deals from the current minimum 15 days, Okubo
said in an interview. The panel, which meets for the first time
tomorrow, was set up to examine ways to restore confidence in
markets rocked by trading and accounting scandals.

Japanese regulators are investigating short selling by
investors who used information leaked from underwriters
including Nomura Holdings Inc. before stock offerings were
announced. The benchmark Topix Index has lost 16 percent since
the securities watchdog revealed the first case on March 21.

Japanese law requires at least two weeks from the
announcement of equity offerings to the conclusion of the
transactions, in order to give investors time to decide whether
to participate. The period also gives shareholders ample time to
sell the stock on concern about dilution, Okubo, 51, said.

Under the proposal, lead underwriters would begin marketing
equity offerings before they are announced, on the basis that
they and investors adhere to strict rules on confidentiality,
with punishments for breaches, said Okubo. That would bring
Japanese practice in line with markets including the U.S., he
said.

For more, click here.

Nasdaq Exchange Immunity May Limit Losses From Facebook Claims

Nasdaq Stock Market can rely on legal protections afforded
exchange operators to avoid paying damages to firms that lost
money on Facebook Inc., the former chief executive officer of
the American Stock Exchange said.

The second-largest equity venue’s status as a self-regulatory organization means it will probably be spared
liability for technology breakdowns and bad decisions in the May
18 initial public offering, said Neal Wolkoff, a lawyer who also
ran ELX Futures LP. Nasdaq OMX Group Inc., the parent company,
proposed setting aside $40 million to compensate firms after
delayed orders and confirmations left brokers and fund managers
unsure of how many shares they owned in the $16 billion IPO.

At least one investor has sued Nasdaq and brokers Knight
Capital Group Inc. and UBS AG said they are considering
lawsuits. Industry losses tied to delays and malfunctions that
slowed the confirmation of trades in the IPO may be close to
$200 million, Knight Chief Executive Officer Thomas Joyce said
June 7. CNBC said the total for UBS alone may be $350 million.

Robert Madden, a spokesman for Nasdaq OMX, declined to
comment, as did Christiaan Brakman, a spokesman for UBS, and
Kara Fitzsimmons of Knight.

The owner of the largest social networking website was
scheduled to open at 11 a.m. New York time on May 18 when
trading was delayed by a design flaw in Nasdaq’s IPO auction
mechanism. Fixing it blocked order updates and cancellations
sent to the exchange over 19 minutes from being included in the
first public trade, or cross, at 11:30 a.m., and prevented
confirmations from being immediately distributed to brokers.

For more, click here.

Compliance Action

French Prosecutor Seeks to Increase Continental Fine, AFP Says

Continental Airlines Inc. should be convicted for
negligence and fined 225,000 euros ($283,050) in connection with
the Air France Concorde supersonic jet crash near Paris in 2000,
a French prosecutor recommended yesterday, Agence France-Presse
reported.

The prosecutor’s recommendation was to a court that is
hearing the airline’s appeal against its 2010 conviction, Agence
France-Presse said. The fine is heavier than the 200,000 euros
imposed by the lower court, though the prosecutor advised the
appeals court to clear the two Continental employees charged in
the affair, including the mechanic who received a suspended jail
sentence in the earlier verdict, AFP said.

Continental Airlines is now part of United Continental
Holdings Inc.

Deutsche Bahn Faces EU Antitrust Probe Over Rail Power Prices

Deutsche Bahn AG, Germany’s state-owned railway, faces a
European Union antitrust probe over the prices a unit charges
for power used by trains.

The European Commission will investigate whether Deutsche
Bahn’s DB Energie unit, the only supplier of traction current in
Germany, offers discounts that “lead to higher prices for
competitors of Deutsche Bahn and place them at a competitive
disadvantage on the rail freight and passenger market,” the
regulator said in an e-mailed statement.

EU regulators raided Deutsche Bahn’s offices last year to
check allegations that DB Energie was favoring the group’s rail-freight arm over others.

Deutsche Bahn “will work with the commission to clear up
the issue,” according to a spokesman who declined to be named,
citing company policy.

Deutsche Bahn last year filed a lawsuit at the EU’s Court
of Justice in Luxembourg over the EU raid that it said was an
unjustified “fishing expedition” by investigators seeking
evidence of antitrust infractions.

EU regulators can fine companies as much as 10 percent of
their yearly revenue for abusing a monopoly position.

Courts

Kerviel Tells Court He Only Sought to Make Money for SocGen

Jerome Kerviel told a Paris appeals court yesterday that
his only goal was to make money for Societe Generale SA and
reiterated his superiors knew he was taking positions that
exceeded his trading limits.

The former trader answered questions from the court as well
as lawyers for the bank and himself about the events of January
2008, when Societe Generale unwound his positions and announced
the resulting 4.9 billion-euro loss ($6.2 billion). He has said
previously that his actions were well-known and he never tried
to personally profit from the trades.

Kerviel was convicted in 2010, sentenced and ordered to pay
restitution in a verdict that held him solely responsible. He
said during hearings last week that the bank allowed him to
exceed his limits as a cover for unhedged positions the bank
took in the subprime mortgage market, where it foresaw losses.

Philippe Hoube, a broker at Newedge Group, who wrote an
unsigned letter included with the documents, will testify today.
Hoube said Societe Generale filled Kerviel’s account with losing
operations before unwinding it to increase the loss it could
attribute to him, Liberation newspaper reported yesterday,
quoting the broker.

Luc Francois, one of the Kerviel’s former superiors and an
appeal witness, said the theory the bank knew of Kerviel’s
outsized trades and used him as a fall guy for subprime losses
was “a gigantic lie” and managers were in “complete shock”
when they learned of the situation.

Societe Generale said it will address Hoube’s “incorrect
analyses and the wrongful allegations” in a note to the court.

Tax Deal That Saved Goldman $31 Million to Get Court Review

A deal between British authorities and Goldman Sachs Group
Inc. that saved the bank as much as 20 million pounds ($31
million) in taxes will be reviewed by a U.K. court, a judge
ruled today.

The decision came after anti-austerity group UK Uncut
questioned the legality of the decision by British taxing
authority Her Majesty’s Revenue & Customs that allowed Goldman
to forego paying interest on money owed from a plan to avoid
contributions on employee bonuses dating from the 1990s.

The British government has pledged to crack down on what it
sees as abusive tax-avoidance schemes, including a Barclays Plc
plan that denied the Treasury more than 500 million pounds.
Barclays Chief Executive Officer Robert Diamond criticized the
government’s handling of the dispute in May, calling it
“unwarranted.”

Judicial review is a legal mechanism that examines the
decision-making process of public bodies. UK Uncut had also
asked for the court review to consider overturning the Goldman
settlement, a request that was denied by Judge Peregrine Simon.

Simon said the reexamination will focus on whether the
agreement was legal, and not on unraveling the settlement.

Comings and Goings

U.K. Antitrust Regulator Appoints Maxwell Chief Executive

The Office of Fair Trading appointed Clive Maxwell as its
new chief executive officer, the regulator said today in a
statement.

Maxwell, who has been on the OFT’s board since September
2010, replaces John Fingleton, who has been in the role for
seven years. The U.K. antitrust regulator said Maxwell will be
paid 135,500 pounds ($209,000) a year.

The U.K. government announced in March that it planned
beginning in April 2014 to bring together the antitrust
functions of the OFT and the Competition Commission to create
the Competition Markets Authority.

Nigeria’s SEC Head Oteh Sent on Compulsory Leave by Board

Arunma Oteh, director-general of Nigeria’s Securities and
Exchange Commission, was sent on “compulsory leave” to enable
an independent investigation of allegations of mismanagement,
the market regulator said.

The decision followed an audit of spending on celebrations
of the 50th anniversary of the capital market, Edosa Kennedy
Aigbekaen, the secretary to the commission, said yesterday in an
e-mailed statement. It was recommended to the board “that the
key actors in the management of the funds should be asked to
step aside to allow an unhindered investigation,” he said.

Daisy Ekineh, SEC’s executive commissioner for operations,
will temporarily act as director-general, according to the
statement. Oteh didn’t immediately respond to an e-mailed
request for comment. An official who answered a call to the
agency said Oteh had made representations to the appropriate
authorities and wasn’t available for comment.